U.S. to Boost Rate on Savings Bonds

Securities: Higher return is based on 90% of the average five-year Treasury yields.

WASHINGTON — Treasury Secretary Robert Rubin on Wednesday announced a new formula designed to improve the return on U.S. savings bonds.

Interest on the bonds will accrue monthly instead of every six months, Rubin said. Also, bondholders will be penalized three months' interest if they don't hold the bonds for at least five years.

"These changes will make savings bonds more attractive and competitive," Rubin said in announcing the changes.

"For decades, savings bonds have helped make the American dream a reality for millions of families, helping to pay for everything from housing to education to retirement," Rubin said. "About one in four Americans now owns a savings bond. That's good, but we can and should do better."

Purchases of savings bonds have declined in recent years. Last year, Americans bought $6 billion in savings bonds, down from $7.2 billion in 1995 and $8 billion in 1994, the Treasury Department said.

Rubin said that savings bonds issued after May 1 will earn a higher rate based on 90% of the average five-year Treasury yields for the previous six months.

In recent years, savings bonds have been earning a lower rate for the first five years they are held and then 85% of the five-year Treasury note yield.

The Treasury has been planning to issue inflation-indexed savings bonds, similar to its new series of 10-year notes.

About 55 million Americans own savings bonds. They have long been popular with conservative investors because they are safe, can be purchased in small denominations and the interest is exempt from state and local taxes.